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Eurodollar spreading
- Thread starter cdcaveman
- Start date
Quote from sle:
Out of curiosity, how do they get around the funding issues as a prop firm? Basis trading is highly balance-sheet and repo/funding intensive.
These prop firms were very well funded. I think Breakwater had some capital issues before they restructured their firm but TMG and Chopper are monsters. All three were heavily bid in every treasury auction. I'm sure you know that Rubio was one of the founding partners of ELX.
Given that futures basis strategies are fundamentally driven by the level and volatility of short rates, trading the basis has grown more difficult and less rewarding to much the same extent as trading Eurodollars. Again, I am saying this, since I actually look at both of these mkts. Neither myself nor any of my colleagues have actually traded anything in USD, EUR or GBP bond futures basis for years now (ironically, there's been a lot of action in $ bloc, like AUD and CAD), but we sure have been trading a LOT of STIRs. I don't see why a prop firm would be any different.Quote from Maverick74:
Marty, Breakwater, Chopper, TMG, M&N, all trade the basis. It's the cornerstone of their business. Eurodollar spreading was bigger years ago when rates were not at or near zero, now that trade is not as exciting as it once was. I'm glad you "profoundly" disagree. We'll leave it at that.
I just don't see why you would say such a thing. Take one of the threads in the Journals section on ET, where Daal and maybe others have made very good money (I assume) trading Eurodollars and FedFunds outright and through options. None of the people there are rates specialists, do massive size or get member rates, as far as I am aware. That's at least one example that gives me the idea. And yes, I did ask nicely. All I meant to say was that there's a discussion with a particular focus. Your post, albeit thoughtful and detailed, represented a shift in focus and a digression. Was that such a hostile and unreasonable act? Did you have to allude to me like I am a woman suffering from PMS or smth?And no, I don't think he should be trading Eurodollar spreads in his IB account. In fact, I don't think ANY retail guy should. I just think there are better ways for him to make a buck. That is just MY opinion.
You can disagree. You know Marty as well as I do how competitive that space is and the size guys have to trade to make any kind of decent money not to mention the cheap member rates they need to have to make it cost effective. It's NOT the ideal place for a beginner. I don't know what gives you that idea. Most of the guys I know in Chicago who have been trading rates for a decade have gotten crushed the last two years. Many shops have shut down. But hey, Marty thinks its a great place for a young newbie to be. Fair enough. That's your opinion. There are more Stirs traders in London then Chicago for obvious reasons. So yes, I get it that they are big over there in their domiciled market. And yes Marty, I'm aware they trade around the clock. And no, you didn't ask anything nicely.
My response was no more condescending than your post.I took the time to write out a thoughtful detailed post about how the market works and I get a condescending response from you. Marty, this is why people don't post here anymore. This is why I "rarely" post outside of my trading thread. To avoid people who feel the need to act all prissy when a conversation expands to provide a little more perspective. Anyway, I'm done here. I rarely get into these arguments north of the p&r threads so I'm not interested in having a back and forth here. You can disagree all you want. It is of no consequence to me.
At any rate, it's unfortunate that you're not interested, but it's obviously, your prerogative. Best of luck!
Quote from Martinghoul:
Given that futures basis strategies are fundamentally driven by the level and volatility of short rates, trading the basis has grown more difficult and less rewarding to much the same extent as trading Eurodollars. Again, I am saying this, since I actually look at both of these mkts. Neither myself nor any of my colleagues have actually traded anything in USD, EUR or GBP bond futures basis for years now (ironically, there's been a lot of action in $ bloc, like AUD and CAD), but we sure have been trading a LOT of STIRs. I don't see why a prop firm would be any different.
I just don't see why you would say such a thing. Take one of the threads in the Journals section on ET, where Daal and maybe others have made very good money (I assume) trading Eurodollars and FedFunds outright and through options. None of the people there are rates specialists, do massive size or get member rates, as far as I am aware. That's at least one example that gives me the idea. And yes, I did ask nicely. All I meant to say was that there's a discussion with a particular focus. Your post, albeit thoughtful and detailed, represented a shift in focus and a digression. Was that such a hostile and unreasonable act? Did you have to allude to me like I am a woman suffering from PMS or smth?
My response was no more condescending than your post.
At any rate, it's unfortunate that you're not interested, but it's obviously, your prerogative. Best of luck!
Marty, ALL the chicago prop firms are getting hurt in the rate space. I NEVER stated that the basis trade was where it was at at the moment. In fact, almost all these firms have seriously downsized the last few years. I simply stated that is where the edge was at. Not in trading stirs where a bulk of the money for a long time came from exchange rebates offered for providing liquidity. Hardly something a small retail guy is going to benefit from.
And not to belabor this point as I'm growing tired now debating this, but I never said NO ONE can make money doing this. Just as I'm sure there are guys out there trading bitcoins and baseball cards, I'm sure there ARE guys out there making money trading eurodollar spreads as a small retail trader. Why wouldn't there be? Please re-read what I said. I STATED that I thought it was not the best place to be. Especially if one is trading with non member rates in a retail account and without the speed and access to capital that most prop traders have.
And Marty, comparing you to a woman? LOL. Where did you get that from? I told you get a scotch (as in a drink) and get off my back. And by getting off my back, I didn't need to get shit from you about explaining to a guy the nuances of how the rate market works in different areas. This is a message board you know, or so I thought. You seem to have an awfully bad habit of either not understanding what other people write (perhaps innocently) or there are cultural barriers of some sort that cause you to take things out of context.
I gave my opinion and stated I was doing so. What is my opinion based on? Oh I don't know Marty, I was involved in the Chicago prop trading community for over a decade and had friends at all these firms. I knew many of the partners as well at these places. I've had 100's of hours of lengthy conversations with traders of every ilk as well as their partners about what they are doing, what's working, not working, etc. So I have formed opinions based on these conversations. Could my opinions be wrong? You betcha. But it's a little more then you reading a guy on anonymous ET journal who says he is doing well trading whatever. Not to discount Daal at all. Just saying that if that is the genesis of your theory that this market is perfect for the little guy, well, I'll go with the conversations I have had with 100's of guys at every major firm in Chicago as well as their risk managers, their partners, their backers, their programmers, etc. Could they all be lying to me? You betcha. But then again, so could your anecdotal ET Journal. Have a good weekend Marty.
Very well, you have a good w/e as well...Quote from Maverick74:
Marty, ALL the chicago prop firms are getting hurt in the rate space. I NEVER stated that the basis trade was where it was at at the moment. In fact, almost all these firms have seriously downsized the last few years. I simply stated that is where the edge was at. Not in trading stirs where a bulk of the money for a long time came from exchange rebates offered for providing liquidity. Hardly something a small retail guy is going to benefit from.
And not to belabor this point as I'm growing tired now debating this, but I never said NO ONE can make money doing this. Just as I'm sure there are guys out there trading bitcoins and baseball cards, I'm sure there ARE guys out there making money trading eurodollar spreads as a small retail trader. Why wouldn't there be? Please re-read what I said. I STATED that I thought it was not the best place to be. Especially if one is trading with non member rates in a retail account and without the speed and access to capital that most prop traders have.
And Marty, comparing you to a woman? LOL. Where did you get that from? I told you get a scotch (as in a drink) and get off my back. And by getting off my back, I didn't need to get shit from you about explaining to a guy the nuances of how the rate market works in different areas. This is a message board you know, or so I thought. You seem to have an awfully bad habit of either not understanding what other people write (perhaps innocently) or there are cultural barriers of some sort that cause you to take things out of context.
I gave my opinion and stated I was doing so. What is my opinion based on? Oh I don't know Marty, I was involved in the Chicago prop trading community for over a decade and had friends at all these firms. I knew many of the partners as well at these places. I've had 100's of hours of lengthy conversations with traders of every ilk as well as their partners about what they are doing, what's working, not working, etc. So I have formed opinions based on these conversations. Could my opinions be wrong? You betcha. But it's a little more then you reading a guy on anonymous ET journal who says he is doing well trading whatever. Not to discount Daal at all. Just saying that if that is the genesis of your theory that this market is perfect for the little guy, well, I'll go with the conversations I have had with 100's of guys at every major firm in Chicago as well as their risk managers, their partners, their backers, their programmers, etc. Could they all be lying to me? You betcha. But then again, so could your anecdotal ET Journal. Have a good weekend Marty.
"In finance, bond convexity is a measure of the sensitivity of the duration of a bond to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher the convexity, the more sensitive the bond price is to the change in interest rates. Bond convexity is one of the most basic and widely used forms of convexity in finance."
Sensitivity?!! meaning, how much it changes in relation to spot, or cash..
"Convexity is a measure of the curvature or 2nd derivative of how the price of a bond varies with interest rate"
Duration is the first derivative..
convexity is the second derivative..
Sensitivity?!! meaning, how much it changes in relation to spot, or cash..
"Convexity is a measure of the curvature or 2nd derivative of how the price of a bond varies with interest rate"
Duration is the first derivative..
convexity is the second derivative..
Yes, this is correct... The best way to think of convexity in practice is to imagine that you're trying to explain the PNL of your position based on its risk.Quote from cdcaveman:
"In finance, bond convexity is a measure of the sensitivity of the duration of a bond to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher the convexity, the more sensitive the bond price is to the change in interest rates. Bond convexity is one of the most basic and widely used forms of convexity in finance."
Sensitivity?!! meaning, how much it changes in relation to spot, or cash..
"Convexity is a measure of the curvature or 2nd derivative of how the price of a bond varies with interest rate"
Duration is the first derivative..
convexity is the second derivative..
Since Eurodollars are "forwards" (like all other futures), what you get isn't, strictly speaking, "carry", but rather a related concept called "roll". Like you said previously, roll is like convergence to spot for other mkts.Quote from cdcaveman:
in the eurodollar curve.. what does it mean to be making the 'carry"